Payroll tax
From Wikicpa
Payroll taxes are the state and federal taxes that an employer and employee are required to pay. Half of these taxes are withheld from each employees' check and this amount is matched by the employer. The law requires the employer to withhold state and federal income taxes as well as social security and Medicare taxes from all your employees' wages. In addition the employer is required to pay State and Federal unemployment tax.
Social security and Medicare taxes
Social security and Medicare taxes, also known as FICA taxes must be withheld from your employees' wages. As an employer, you must also pay a matching amount of FICA taxes for your employees. As of 2009, the social security tax rate is 6.2%. The employee must have 6.2% withheld from their wages for social security taxes and the employer pays a matching amount in social security taxes until the employee reaches the wage base for the year. The wage base for social security tax in 2009 is $106,800 ($102,000 in 2008). Once that amount is earned, neither the employee or the employer owes any social security tax.
The Medicare tax rate is 2.9% for the employee and the employer. The employer must withhold 1.45% of an employee's wages and pay a matching amount for Medicare tax. Unlike the Social security tax there is no maximum wage base for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay Medicare tax, no matter how much is earned.
Unemployment taxes
Each employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). The FUTA rate is 6.2% but normally nets to .8% because the employer is allowed to take a credit of up to 5.4% for SUTA taxes that it pays. this will be the case if you are eligible for the maximum credit your FUTA rate. The wage base for FUTA is $7,000. You will stop paying FUTA for each employee once their earned wages exceed $7,000 per calendar year. Each state has different rate so you will need to check with your state about SUTA tax rates and maximum wage base. Many states require new business to have an average starting rate until an employment history is created. For example, Indiana requires new employers to pay 2.7% for the first 3 years. Afterwards the rate is adjusted depending various factors including if any of their ex-employee filed for unemployment benefits.
Historical social security wage tax base
| Year | Social Security Wage Base | Social Security Tax Rate | Maximum Annual Social Security Withholding Tax | Maximum Annual Social Security Tax (for self-employed) |
|---|---|---|---|---|
| 2009 | $106,800 | 6.2% | $6,621.60 | $13,243.20 |
| 2008 | $102,000 | 6.2% | $6,324.00 | $12,648.00 |
| 2007 | $97,500 | 6.2% | $6,045.00 | $12,090.00 |
| 2006 | $94,200 | 6.2% | $5,840.40 | $11,680.80 |
| 2005 | $90,000 | 6.2% | $5,580.00 | $11,160.00 |
| 2004 | $87,900 | 6.2% | $5,449.80 | $10,899.60 |
| 2003 | $87,000 | 6.2% | $5,394.00 | $10,788.00 |
| 2002 | $84,900 | 6.2% | $5,263.80 | $10,527.60 |
| 2001 | $80,400 | 6.2% | $4,984.80 | $9,969.60 |
| 2000 | $76,200 | 6.2% | $4,724.40 | $9,448.80 |
| 1999 | $72,600 | 6.2% | $4,501.20 | $9,002.40 |
| 1998 | $68,400 | 6.2% | $4,240.80 | $8,481.16 |
| 1997 | $65,400 | 6.2% | $4,054.80 | $8,109.60 |
| 1996 | $62,700 | 6.2% | $3,887.40 | $7,774.80 |
| 1995 | $61,200 | 6.2% | $3,794.40 | $7,588.80 |
| 1994 | $60,600 | 6.2% | $3,757.20 | $7,514.40 |
| 1993 | $57,600 | 6.2% | $3,571.20 | $7,142.40 |
| 1992 | $55,500 | 6.2% | $3,441.00 | $6,882.00 |
| 1991 | $53,400 | 6.2% | $3,310.80 | $6,621.60 |
| 1990 | $50,400 | 6.06% | $3,054.24 | $6,108.40 |
| 1989 | $48,000 | 6.06% | $2,908.80 | $5,817.60 |
| 1988 | $45,000 | 6.06% | $2,727.00 | $5,454.00 |
| 1987 | $43,800 | 5.70% | $2,496.60 | $4,996.20 |
| 1986 | $42,000 | 5.70% | $2,394.00 | $4,788.00 |
| 1985 | $39,600 | 5.70% | $2,257.20 | $4,514.40 |
For information on Federal payroll tax requirements, check out IRS publication 15, Circular E. For information on State payroll tax requirements, contact your state's taxation and revenue department.
